The SEC today charged a Washington-based commercial truck manufacturer for a number of accounting deficiencies that clouded the company’s financial reporting to investors during the financial crisis. The SEC alleges that PACCAR’s accounting controls included ineffective policies and procedures that kept the business from adhering to various accounting laws and rules. The company failed to report the operating results of its aftermarket business separately from its truck sales business as mandated under segment reporting rules, which are established to ensure that investors procure the same insight into a business as its primary executives.
PACCAR and one of its subsidiaries also failed to offer complete information regarding their respective loan and lease portfolios, and the company also overstated some lease and loan originations and collections and two of its foreign subsidiaries in its statement of cash flows. Both PACCAR and its subsidiary agreed to settle these charges.
“Companies are required to diligently monitor their internal accounting systems to ensure that the information presented is consistent and accurate with the relevant accounting guidance,” said Michael Dicke, the Associate Regional Director of the agency’s San Francisco Office. “The deficient procedures and controls at PACCAR caused glaring inconsistencies in its reporting and kept regulators and investors from seeing the company through the eyes of the company’s management personnel.”
According to the complaint, PACCAR is a Fortune 200 company that manufactures, designs, and distributes trucks and aftermarket parts that are sold under the Kenworth, DAF, and Peterbilt nameplates. From 2008 through 2012, PACCAR did not report the results for its parts business as a separate entity from its truck sales business. For instance, the company’s 2009 annual report showed $68 million in income prior to taxation for its truck segment; however, board materials and documents reviewed by senior executives revealed that the trucks business encountered a $474 million loss and the parts business procured a $542 million profit. By at least 2008, the company should have been reporting its aftermarket business as a separate entity in its filings, but failed to do so until the 4th quarter of last year.
The United States Securities and Exchange Commission unanimously agreed to propose new regulations that would alter the way that money market funds operate in order to make them less volatile and susceptible to fluctuations that would ultimately harm investors.
The rules proposed by the federal agency include two principal reforms that may be adopted singularly or in combination. One alteration would require a floating net asset value for the prime institutional money market fund class, while the other alteration would permit the use of redemption gates and liquidity fees in times of distress. The proposal also includes additional disclosure and diversification measures that would be applied under either of the proposed regulations.
The United States Securities and Exchange Commission started to evaluate the need for such reforms after the Reserve Primary Fund faltered at the height of the great recession in September of 2008.
“Our main priority is to implement sound and effective reform measures that decrease the susceptibility of money market funds to lengthy runs and to prevent events similar to the one that occurred in 2008,” claimed Mary Jo White, the chairwoman of the Securities and Exchange Commission.
The public will be allowed to comment on these proposals for 90 days after the regulations are promulgated in the Federal Register.
The Securities and Exchange Commission today charged South Miami with defrauding bond investors regarding the tax-exempt financing eligibility of a mixed-use paring and retail structure being constructed in its downtown commercial area.
The SEC investigation found that the city of approximately 11,000 residents located in Miami-Dade County borrowed roughly $12 million in two pooled, conduit bond offerings through the state’s Municipal Loan Council. The city’s participation in these offerings enabled it to borrow funds at generous tax-exempt rates. The city claimed that the project was eligible for tax-exempt financing in several documents for the second offering that were trusted upon by bound counsel in generating its tax opinion.
However, the city failed to disclose that it had jeopardized the tax-exempt status of the bond offerings by illegally loaning proceeds from the first offering to a private contractor and restructuring a lease agreement before the second offering.
The city of South Miami agreed to settle the charges and keep an independent third-party consultant to oversee its procedures, policies, and internal controls for municipal bond disclosures.
“The city’s fraudulent conduct put bondholders in considerable danger of incurring substantial additional costs associated with their investments,” said Elaine Greenberg, the Chief of the SEC’s Enforcement Division of Municipal Securities and Public Pensions Unit.
According to the agency’s order, the city of South Miami sought financing to construct a public parking garage. The project ultimately become a mixed-use public parking and retail structure that was intended to be developed by a for-profit developer—South Miami was responsible for all construction costs save for the retail aspect of the structure. The city retained control over the maintenance and operation of the garage portion and all revenues generated from parking. The developer’s limited role was pivotal to the city procuring the benefits of tax-exempt financing. Under IRS rules and regulations, the project was allowed to be financed on a tax-exempt basis only if the for-profit developer used it on a limited basis.
According to the agency’s order, the city approved financing for the construction of the tax-exempt portion of the building and moved ahead with its bond pool offering. However, the bond counsel identified a tax issue with the mixed-public retail aspect of the project, and during subsequent conference calls, bound counsel informed the city that no funds from the offering could be utilized to finance the retail aspect of the structure.
The SEC found that city finance directors were unaware of these discussions or how the lease contact affected the bond’s tax status.